how to trade inside bar 8

Inside Bar Trading Strategy: Entry and Exit Tips

An inside bar formed during uncertainty or a flat market might not give a clear signal for future price direction. Traders wait for the price to break out above or below the inside bar, and then enter the trade in that direction, hoping it will lead to a strong trend. An inside bar often signals uncertainty or a temporary balance between supply and demand. Traders use it to enter positions when the price breaks out of the inside bar’s extremes, hoping to catch the beginning of a new trend. The inside bar candlestick pattern is a natural pattern and it works, and it will continue working because this pattern reflects a natural pattern.

What does inside bar candlestick tell traders

• Instead, we recommend mastering price action, market structure, and volume analysis as the foundation of your trading strategy.
• Inside Bars suit traders who are looking for breakout setups, while Outside Bars can be beneficial for reversal trades.
• The inside bar pattern is neither a bullish pattern nor a bearish pattern.
• The following candle, however, is much smaller and fits entirely within the big one’s range.
• An Inside Bar pattern is a formation of two consecutive candlesticks in which the first candle, known as the “mother bar,” has a wide high-to-low range.

When you notice an Inside Candle on the price chart, you should mark the high and low of the Inside Bar consolidation range. Many traders place their stop loss just above or below the high of the mother bar, but this is dangerous because the stop can easily be taken out before the trade can progress. To start tracking Inside Bars on your charts, use one of our handy alert indicators. The key is to be able to understand which levels are most likely to hold and which ones are just random lines on a chart. It will take you through the process of identifying the most significant levels on any chart. For many traders, it helps to have a specific definition of a trend.

The 3 inside bar strategy involves entering a trade at a breakout or breakdown of two consecutive inside bars. An Inside Bar represents a consolidation or a pause in a trend. The expectation is usually that the trend will continue after the pattern. Once I identify an established trend (higher lows for an uptrend or lower highs for a downtrend), I can look for an Inside Bar Pattern to appear and use that to enter.

Trading Inside Bars Against the Prevailing Trend

A bullish Inside Bar will form when the market has been trending upwards. Buyers have been in control, steadily pushing the price higher. When the next candle forms and stays completely within the range of a previous, larger candle, you have found the Inside Bar. This smaller candle is showing you that the market is pausing, but not reversing.

The pattern has stood the test of time across many markets—Forex, stocks, indexes, and cryptocurrencies. As the Inside Bar has two candles, they can sometimes be more effective than a single candlestick pattern. But as we already mentioned, the best use of the Inside Bar is with other technical analysis and not on its own. To do this, we will use one of the most popular technical indicators—specifically, an oscillator—the relative strength index (RSI). However, we will not use the RSI merely to indicate whether the asset is overbought or oversold; instead, we will leverage its ‘leading’ capability as a divergence tool.

• If the inside bar is quite wide, this can lead to higher risk.
• These steps help traders avoid big losses and make more money.
• Even if you do not trade this setup, it can be used as a confirmation when used in conjunction with another trading system.
• Notice how the bullish inside bar in the above illustration formed at the top of the mother bar’s range.
• After identification of a trade setup, the breakout of the inside bar will decide either to trade that setup or skip that setup.

2 — this candle shows a bearish breakout of the inside bar, which suggests opening a short position. However, this position would likely hit its stop-loss on the very next candle (3).Contextual analysis can provide valuable clues. On the candle before the inside bar, the price briefly dipped below the round psychological level of 18,400 during the day but closed above it (4). This could have been a stop-loss hunting targeted at retail traders, while a larger player was building a long position.

As you know, I’m a huge advocate of trading from the higher time frames as they tend to cancel out most of the noise from scheduled and unscheduled news events. There are five things you want to look for when evaluating any inside bar pattern. The simple technique to filter the trade is by plotting 10 Day Simple Moving Average on the price chart.

Ideally, your stop loss should be at the other end of the mother candle. So, in a bullish trade, your stop loss will be at the low of the mother candle. And in bearish trade, your stop loss will be at the high of your mother candle. If the mother candle is unusually big, however, you may place your stop loss at the 50% level of the complete candle range.

The reliability of the inside bar strategy in trading depends heavily on the market context and the effective use of complementary technical analysis tools. Generally, it is more reliable in range-bound markets with clear support and resistance how to trade inside bar levels and good volume or in trending markets with strong volume. However, incorporating volume significantly increases its reliability as a candlestick pattern. Volume analysis during the formation of the inside bar provides additional insights.

He has experience in technical analysis of financial markets, focusing on price action and fundamental analysis. After many years in the financial markets, he now prefers to share his knowledge with future traders and explain this excellent business to them. Daily and 4-hour charts are the most reliable for trading Inside Bars, as they reduce noise and offer stronger signals. However, day traders can use lower time frames, but these may produce more false signals. When combined with other tools or indicators, trading with the inside bar provides an excellent and straightforward smart trade management strategy. Although it is not a decisive chart pattern like many other chart patterns, it certainly enables traders to find many trading opportunities.